The Competition Bureau: The MLS X Files

Some of my best friends are lawyers so I am the last one to make “those jokes” at dinner parties. I do however note that the base tendencies of Lawyers and Realtors are different.  My brokerage recently represented a successful Toronto solicitor in the sale of his home.  The initial focus of the offer was the actual fine print of the OREA form.  The content of the agreement of purchase and sale was incidental to our client.  He thoughtfully dissected the preprinted clauses and we engaged in a lively debate during which he conceded (with quite a bit of surprise) that the provincial association of Realtors and the boards had actually gotten it right.  We proceeded to a very successful conclusion and he is now a big fan of Realtors.  He no longer wants to reinvent the Real Estate wheel. 

Organized real estate experienced more than a little seismic shift last week when the Competition Bureau came at the private MLS system with a crowbar and pried it open to non represented sales.  In the subsequent week that followed, the editorials have exposed a poverty of knowledge about what has been achieved in this ratified deal with CREA.  Both for the consumer and the Realtor.

Peter Foster of the Financial post in his article: “CREA cartel not broken yet” makes the claim that the system is still rigged.  A number of his assertions are mildly confusing to me.  “if buyers were simply able to see what’s available on the MLS then they wouldn’t need a percentage-based agent at all”.  The realtor.ca site (formerly mls.ca) provides an almost exhaustive list of our inventory.  The buyers can peruse this site  for free.  The newspaper is also full of listings.  That’s what we do.  We promote our inventory at considerable expense.  Most Realtors will even set up a search service so that the distilled inventory  is then sent to the buyers mailbox. We like to do that.  They may buy our client’s listing.   There is no motivation to a Realtor to not expose his listings to potential buyers.  

Peter also goes on to state in his Economics 101 article that Micheal Polzler should not encourage the regulator to tighten the license and apprenticeship programs.  The culprit in Peter’s mind is that there are too many agents in the industry that the consumer is burdened with this fact and must fund the fruitless efforts of these agents and compensate their unsuccessful  work.  He is arguing that less agents will increase the fees.  But in my Economics 101 class at the University of Toronto, they told me more supply equals reduced pricing.  He stumped me again. I am also confused as to why Peter, in his Financial Post article would criticize a call for higher standards.  That’s weird. 

In reality, the MLS is a powerful tool for the successful sale of real estate.  It is a factor in 90% of the transactions.  What the consumer may not realize is that in a balanced market, 1 in 4 listings on MLS actually sell.  That means, a failure rate of 60-75% in a good market.  What that tells me is that there is more to the process than just a posting on MLS. The new rules provide for the Realtor to charge a service fee for every listing they take.  I am no economist but it occurs to me that if the average Realtor can charge a fee for entering a listing on the system, the 75% of listings that have not sold will still provide a nice revenue stream for the compelling innovative models that some Realtors have lobbied for.  The retainer has emerged.  Wait a second….retainer?  I guess we are just not used to getting paid for services unless we sell something. 

I almost dropped my iPad when I read that some discount brokerage may even offer the MLS exposure for free in the hopes of selling other services to the seller. What an innovative idea…..I have been a Realtor since the 80s and have never charged for an MLS posting.  The Realtor funded MLS system has always been offered as part of the system we use to sell listings.   We have always offered the use of our privately funded, broker to broker system in the process of a successful sale.  And as an added bonus, the Realtor works on commission and  has a vested interest in the success of the sale.  He pays the adverting, MLS fees, flyers, photos, floor plans, features and 1 out of 4 times he gets paid.  AFter reading a number of articles in the Post, the Star, the Globe… it occurred to me….Wow, does anyone understand how this industry works?

All of this raging towards Realtors with their clandestine, closed, secret inventory – who is hiding the inventory?  Making “absurd commissions” as one publication stated.   The average Realtor makes $37,000 annually before expenses. Hardly up there with the Lehman brothers.  You should hug your Realtor for creating this reliable, predictable marketplace for your largest investment.  If all 100,000 Realtors went on strike tomorrow, what would happen to your investment? 

In the US, the system has been open to the fee per service and the average commissions have remained virtually unchanged. The beauty of a free market system. The serious seller who wants to sell will likely chose to hire a Realtor who will represent him.  The average unrepresented sale (NAR 2006 study) yields 15% less than a represented sale.   The buyers who are looking for private or unrepresented sales are typically looking for the benefit of the commission.  Most buyers are not willing to risk representation in an effort to save an abstract commission.  Their instincts are that they need help in the process of selecting a home.  As a Realtor, the first thing I would do when looking for property out of my area is refer myself to a local Realtor.  I don’t want to be that buyer who knows it all and buys the rural property with an environmental issue and a dry well next to the new windmill farm backing on to the site of  last year’s triple homicide.   I would not risk my capital in an attempt to save a service fee.  I also don’t e trade.  I leave that to my financial adviser.  I also don’t cut my own hair.  I am aware I may save a fee.  But these people are trained and experienced in an area that I am not.  And they do this all day.  I am a Real Estate broker by day.

My hope is that the consumer is fully aware that paying for a posting on MLS will not automatically result in a sale at all.  In reality, they will likely need to hire an agent to represent them when their “posting” doesn’t work.  Where is the economy? There are a lot of homes for sale on MLS-the competition for a buyer is brisk.  Do you really want to  bring a knife to a gun fight?

Anyway, I am off to the secret Cartel  meeting at the docks so I had better sign off.  We are drafting our service menu today.  Was that $50 per sign back…..?

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